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As I have previously stated on these pages the changes in the law and the rules are all designed to eliminate delay tactics on the part of the borrower. Most of these changes do not eliminate delay tactics on the part of the party seeking foreclosure. Frankly I don’t think many of these changes will survive constitutional challenge. But as long as they are on the books they represent the reality in which we are litigating.
The bottom line is that the walls are closing in on the strategy of delay. This is changing the landscape of litigation and will cause changes in the retainer agreements between the attorneys and their clients who are defending foreclosures. Where the goal has been delay and recovering economic damages through nonpayment of rent or mortgage payments, those cases are likely to come up for summary disposition.
The cost of litigating a case aggressively as opposed to buying time is different. One of the problems that some homeowners are going to experience is that they are now accustomed to not paying rent or mortgage payments or even taxes or insurance. That time is coming to an end. One way or the other you are going to have to be prepared to start making some payments on the maintenance, taxes, insurance, principal and interest. The only real question is the size of the monthly payments and the principal balance of the loan payable to the party who owns the unpaid account receivable, loan receivable, note receivable or bond receivable.
Motions can be brought before the court and heard within short periods of time demonstrating that the borrower is seeking to move the case along if the motions contain simplified elements. For example, instead of arguing the academic question of standing and indispensable parties (all of which I think are legitimate and under other circumstances would be sustained) a motion could be filed in court which challenges the ability of the foreclosing party to submit a credit bid at the time of auction.
Of course I am not an expert in the state laws of all 50 states. And this article is for general information purposes only and not an acceptable substitute for seeking the advice of an attorney who is licensed in the jurisdiction in which the property is located.
My suggestion is that a motion be filed after proper discovery has revealed that neither of the foreclosing party nor any party they purport to represent is the owner of an unpaid account receivable. Instead of using that to dismiss the case, I am suggesting that it be used to prevent the foreclosing party from submitting a credit bid because they do not fulfill the requirements and elements set forth in the statutes of the state in which the foreclosure auction is going to take place.
While the statutes may differ in their wording, the general rule is that a party may submit a credit bid and buy the property without offering any cash if they are the creditor. Generally that means that they are currently the owner of an unpaid account receivable that was or is the subject matter of the current foreclosure action — and that they are a party to the pending action in one form or another. If discovery is pursued aggressively I believe you’ll find that there is no account receivable, bond receivable, or note receivable in existence — or that the parties seeking foreclosure refuse to reveal the location of such an account.
Even if the account can be found, the probabilities favor a finding that the account receivable bears no relationship with the paper trail on which the foreclosing party has placed reliance. Without going into academic arguments, this could very well mean that even if the account receivable is located, it is not secured by any mortgage or deed of trust. This is why I think HOA’s are missing the boat because I think their lien has priority over any of the claims of the foreclosing parties.
While it could be argued that the reason for that finding would be splitting the note and mortgage, a better argument that would get more traction in court would be that the original debt has been paid in full and that the account receivable is in the nature of contribution which is a separate cause of action apart from collection on the note (which has been paid) or enforcement of the mortgage (worthless because it secures the paid note).
I don’t think there would be much discretion on the part of the court in finding that the foreclosing party is not entitled to submit a credit bid. The burden would be on the foreclosing party to show the money trail and proof of the existence and location of the account receivable that is unpaid. Revealing the money trail will show that the note and original debt had been paid in full, which is why they will oppose your efforts with every tool at their disposal. But if you get that far where such an order has been entered, it would seem inevitable that the case would quickly settle.
The interesting potential result of this would be that anyone could bid on the property if they had the cash and the cash would have to be held until the creditor was determined. The creditor was not determined, money taken in from the sale presumably would be payable to the homeowner.
There is also the possibility of a bid from an investor who then challenges the legality of the credit bid from the non-creditor who submitted the bid. This might lead to a whole other area of litigation. That might not be a good thing when dealing with judges who believe they are under a public mandate to clear the court calendars of foreclosure cases.
It is my opinion that the more aggressively you pursue the case to conclusion the more likely it is that you will achieve a settlement or modification that is satisfactory. The foreclosure mills are set up process these files for $1200 each as a flat fee regardless of how long it takes to litigate them. If the level of litigation activity is increased force the foreclosure mills to go back to the servicers asking for more money because the cases are involving more time, more attorneys, more paralegals and more clerical staff. But I would add the cautionary remark that if you file a motion there must be substantial arguable merit to it or the judge will be annoyed and bring the case to a close in ways that will not satisfactory to the homeowner.
Filed under: AMGAR, CDO, CORRUPTION, eminent domain, Eviction, evidence, expert witness, foreclosure, foreclosure mill, GARFIELD GWALTNEY KELLEY AND WHITE, GTC | Honor, Investor, MODIFICATION, Mortgage, Motions, Servicer | Tagged: account receivable, BID, BOND receivable, cash bid, credit, credit bid, creditor, foreclosure auction, Investor, note receivable, strategy of delay |